Legal Issues of Blockchain-Based Smart Contracts in Real Estate Transactions and Measures for Improvement

Abstract

Although smart contracts are currently realized in a limited scope around virtual assets, the blockchain characteristics of transparency, immutability, and self-enforcing capabilities hold significant value—especially in real estate transactions—as a way to overcome the limitations of traditional real estate transaction systems, such as double selling and duplicate registration, while improving efficiency. For these reasons, several countries have implemented blockchain technology in their real estate registration or recording systems as well as in smart contracts, and are actively operating them. We also need to identify the pros and cons of these operations and utilize blockchain-based smart contracts for real estate transactions. Under current domestic law, introducing measures to digitize real estate transactions using blockchain technology presents several legal challenges. Key issues include how to address the legal validity of smart contracts, the valuation of tokens, compliance with requirements for the transfer of property rights, the legal effect of public registration, and potential conflicts with data privacy obligations. Therefore, measures to promote smart contracts must be established through a thorough review of their consistency with existing legal frameworks. First, to prepare for the activation of smart contracts, measures to ensure regulatory flexibility—such as standard trading rules that minimize post-contract modifications—must be established, along with efforts toward technical standardization. Furthermore, if smart contracts are introduced, attempting to transition the real estate registration system to a blockchain based on its core purpose is the ultimate way to resolve the issues of the existing registration system. Legislative discussion requires establishing legal grounds to grant in rem effect to the digitization and embodiment of real assets, as well as drafting a new registration system to recognize blockchain-based registration records as valid registration for the creation and transfer of real rights. Additionally, relevant legal frameworks must be revised to ensure that the operation of blockchain does not conflict with personal information protection obligations. As blockchain technology—a core domain of information and communication technology, alongside AI—expands beyond the socio-economic sphere into daily life, a more advanced discussion is needed regarding the distinct functions or roles smart contracts based on it will play at this current stage.